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JPMorgan Chase's Q1 Earnings: Better Than Expected, but Lower Than Last Year

The nation’s biggest bank by assets saw its top and bottom lines contract, but still exceeded expectations with respect to earnings per share.

JPMorgan Chase CEO Jamie Dimon took the opportunity in the bank's first-quarter earnings release to emphasize that his team is positioning JPMorgan Chase "to withstand any environment and to maintain scale and profitability through the cycle." Image source: JPMorgan Chase.

JPMorgan Chase's (NYSE:JPM)first-quarter results confirmed fears about a drop in bank industry revenues and profits, but its performance was nevertheless better than analysts expected. The earnings beat boosted shares of the nation's biggest bank by more than 4% during intraday trading on Wednesday.

For the first three months of the year, JPMorgan Chase reported earnings of $5.52 billion, or $1.35 per share. That was down by 7% compared to the same period in 2015, but it exceeded the consensus forecast, which called for earnings of $1.26 per share. The bank's net revenue fell by 3% versus the year-ago period.

"We delivered solid results this quarter with strong underlying drivers," said Chairman and CEO Jamie Dimon in prepared remarks. "The consumer businesses continue to grow loans and deposits impressively, attracting deposits faster than the industry. The U.S. consumer remains healthy and consumer credit trends are favorable."

To Dimon's point, JPMorgan Chase's consumer bank turned in the best performance during the first quarter. Thanks to marginally higher interest rates, which expanded its lending margins, and improved noninterest income associated with making loans and holding deposits, the unit's net revenue increased by 4%, while its profit was 12% higher than the same period in 2015.

The story wasn't as positive for JPMorgan Chase's corporate and investment bank. Earlier in the quarter, the bank noted that its trading revenues were trending down by 20%. They ended up dropping by only 11%, though the better-than-expected results were more than offset by lower investment banking revenue from debt and equity underwriting fees. The latter drove a 24% decline in investment banking revenues.

JPMorgan Chase's commercial bank saw its net income fall due in large part to the energy industry. Oil and gas companies are struggling to service their loans on the back of low energy prices. This caused JPMorgan Chase's commercial bank to increase its loan loss provisions by a factor of five. The provision for credit losses was $304 million, compared to $61 million in the prior-year quarter.

The challenging environment for JPMorgan Chase and other big banks during the first quarter was reflected in its return on common equity, which came in at only 9%. That was two percentage points less than last year, when it generated a return on common equity of 11%. This decline is no doubt temporary, but it's nevertheless concerning given that JPMorgan Chase's cost of equity capital is 11.6%, according to an analysis by Rafferty Capital Management's Dick Bove.

The results from the $2.4 trillion bank are closely watched by bank investors as an omen for what's to come at other major financial firms. Later this week, Bank of America and Citigroup are scheduled to report earnings. Shares of both banks were higher on Wednesday following JPMorgan Chase's results.